AI Era to Bring Challenges and Opportunities for Indian IT Services: HSBC Report

India’s IT services industry is set to expand by 6-7% in FY27, according to a report by HSBC Global Investment Research. The sector continues to show resilience even as artificial intelligence (AI) reshapes traditional IT contracts and project structures.

The report highlighted that while revenue growth in FY26 may remain modest at 5-6%, project volumes are expected to rise by 8-10% as global firms increase their spending on technology modernization.

US Economic Strength Boosting Confidence

A major factor behind the optimistic outlook is the robust performance of the US economy. Several leading American clients of Indian IT companies have reported their strongest quarterly earnings in recent years.

HSBC analysts believe this will improve corporate confidence and trigger higher investments in digital transformation projects through 2025, partially offsetting the deflationary impact of AI automation.

Role of AI and Emerging Opportunities

The report emphasized that “As AI agents evolve into multi-agent systems, potentially prompting a redesign of enterprise software architecture and infrastructure, this shift could unlock new opportunities for Indian IT firms.”

While AI is expected to reduce IT services contract values by 8-10% over the next three to four years, translating to an annual impact of 3-4% between 2025–27, Indian IT companies have so far counterbalanced this effect by scaling up project volumes.

HSBC also clarified that advanced “Agentic AI” systems will not replace IT services entirely, even though hyperscalers are capturing a larger share of enterprise technology budgets.

Industry Challenges: Balancing Deflation and Growth

HSBC’s analysis suggests that 2026 may witness a tug-of-war between AI-led deflationary pressures and favorable macroeconomic conditions. The report stated, “In 2026, we expect a push and pull between this deflationary impact and the macro tailwind.”

This signals a transitional phase for Indian IT services, where companies will need to innovate service offerings, optimize costs, and invest in AI-driven solutions to stay competitive.

TCS: Wage Hike and Restructuring Plans

In a major development, Tata Consultancy Services (TCS) announced a wage hike in August 2025 for about 80% of its workforce, primarily targeting mid- and junior-level employees. At the same time, the company is preparing to lay off nearly 12,000 employees, which accounts for around 2% of its total staff strength, as part of ongoing restructuring efforts to streamline operations and adapt to the AI era.

Conclusion

India’s IT services sector stands at a pivotal moment, balancing both challenges and opportunities as artificial intelligence (AI) reshapes the global technology landscape.

While AI-driven automation is expected to reduce the value of traditional IT contracts by 8-10% over the next few years, the overall industry outlook remains positive.

Rising project volumes, estimated at 8-10%, and strong demand from the US – India’s largest export market – are expected to provide significant momentum. Moreover, the evolution of AI into multi-agent systems could lead to an overhaul of enterprise software architecture, creating entirely new avenues for growth and innovation.

Companies like TCS are already restructuring their workforce strategies by combining wage hikes with job rationalization, signaling a proactive approach to transformation. As India’s IT industry adapts to these shifts, it appears well-positioned to not only withstand disruption but also to thrive in the AI-driven era of digital services.